Whistleblowing: Can New Incentives Overcome Apprehension?

By Kranacher, Mary-Jo | The CPA Journal, July 2011 | Go to article overview

Whistleblowing: Can New Incentives Overcome Apprehension?


Kranacher, Mary-Jo, The CPA Journal


Blowing the whistle on wrongdoing is never easy. Most of us learned in our childhood that "telling" on someone had negative connotations and consequences associated with it. Consider the words we use to describe someone who informs on another's misdeeds: Fink, informant, rat, snitch, squealer, stool pigeon, and tatüetale are just a few of the synonyms for whisüeblower cited in Merriam-Webster's Dictionary. Is it any wonder then that people are sometimes reluctant to blow the whistle when they uncover unethical or illegal activities?

Nevertheless, tips from whistleblowers are the most common means of fraud detection, according to every study conducted by the Association of Certified Fraud Examiners (ACFE) since 2002. How can more individuals be encouraged to come forward, despite the potential consequences of employer retaliation, peer ostracism, loss of employment, and slander to reputation?

On May 25, 2011, the SEC decided in a 3-2 vote to approve a final rule that implements the whisüeblower award program of section 2 IF of the Securities Exchange Act of 1934, a section that was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act The rule sets the standards and procedures for the SEC to apply in awarding financial compensation to those who provide information about possible violations of securities laws that result in successful enforcement actions. It also constructs the outline for whistleblower protections from retaliation under the Dodd-Frank Act of 2010.

Key Elements of the Rule

The Dodd-Frank Act sought to ineentivize whistleblowers with substantial monetary compensation and, consequentiy, required the SEC to pay mese individuals for providing information to the government regarding possible violations of federal securities laws. Eligibility for an award under the SEC's final mie are summarized as follows: 1) A whistleblower, 2) who voluntarily provides the SEC, 3) wim original information, 4) that leads to a successful enforcement action by the SEC mat results in monetary sanctions of more man $1 million, 5) is eligible for an award of 10% to 30% of any amounts recovered. The rule defines each of the segments in the above summary.

Prior to the Dodd-Frank Act, awards were limited to insider trading cases, and the amounts were capped at 10% of the penalties coUected in the case. Although the new rules do not require whistleblowers to report violations internally before they bring the information to the SEC, whistleblowers may be given additional incentives to report the violation within the organization first. …

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Whistleblowing: Can New Incentives Overcome Apprehension?
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